The cost of war in East Africa

The leaders of the two sides in South Sudan’s civil war signed a potentially important deal on Wednesday, January 21. The agreement was signed in Arusha, Tanzania (so it is being called the Arusha Accord) and was overseen by Tanzania’s President Jakaya Kikwete. It formalises the reuniting of the Sudan People’s Liberation Movement (SPLM). Tensions in the SPLM led to a faction led by then-vice president Riek Machar splitting from the body of the party, which remained loyal to President Salva Kiir, in 2013. That split resulted in war after a shooting incident between the factions in December 2013.

South Sudan’s civil war has devastated the country, and has had detrimental economic and, more importantly, social consequences across the East Africa region. Almost two million people have been displaced by the violence, and although there is no official death toll, the International Crisis Group estimates the figure could be between 50,000 and 100,000 people.

The violence broke out in December 2013 when long-standing tensions within the county’s ruling party, the Sudan People’s Liberation Movement (SPLM), boiled over into armed conflict in the nation’s capital, Juba. The SPLM of President Salva Kiir and the SPLM-in-Opposition (SPLM-i-O) of former vice-president Riek Machar continue to engage in what Mao Tse Tung called “talk talk, fight fight”: they meet in Addis Ababa to participate in peace talks, set a date for a firm deal on the structure of a transition government, then miss the deadline and set another date. Negotiations in Addis Ababa continue to fail because the two sides cannot agree on the structure of a transition government.

Mr Kiir is only willing to consider a solution in which he is clearly the senior figure, while Mr Machar wants a solution in which he would have considerable authority from which to launch a presidential bid when elections are held again. Mr Kiir’s government now insists that it will hold elections this year, from which Mr Machar will probably be excluded, so increasing the incentive for the rebel leader to seek a military victory.

For South Sudan, the economic costs are substantial. In its Regional Economic Outlook (REO), published in October 2014, the International Monetary Fund (IMF) expected that the South Sudanese economy would contract by 12.3% in 2014, revised from the Fund’s forecast in April last year that the economy would actually expand by 7.1%. A recent report by Frontier Economics warns that if conflict persists for one to five more years, South Sudan, one of the most impoverished countries in the world, would forego up to $28bn and have to increase its spending on security by $2.2bn.

However, while it is difficult to calculate the actual economic impact, taking into account the counterfactual progress which could have been made had there been no conflict, the social and psychological costs are incalculable.

The conflict has also imposed economic costs on neighbouring countries, particularly Ethiopia, Kenya, Sudan, Tanzania, and Uganda. Sudan’s exposure lies mainly through the shortfalls in its share of earnings of South Sudanese oil production, while other countries will continue to deal with increasing numbers of refugees, security concerns and other spillover effects.

According to Frontier Economics research, these five countries could save up to $53bn if the South Sudanese conflict were resolved within one year, rather than allowed to last for another five years. These costs relate to security needs, including defence expenditure, costs associated with the influx of refugees, as well as the loss of trade revenue.

The fall of Somalia has cost Kenya and Uganda hundreds of millions of dollars in military spending, while the region has been terrorised by al-Shabaab, the Somali extremist group. In turn, the refugee response will be a considerable burden on fiscal coffers across the region, particularly when considering that most governments across East Africa are undertaking ambitious investment programmes. The United Nation’s (UN) refugee agency estimates that Ethiopia alone will incur some $345m in refugee-related costs in 2015. The region as a whole will hope for a speedy solution to the conflict, but this hope wavers as South Sudan continues to succumb to widespread turmoil.

As dire as the situation is, there are still risks on the downside – especially the risk of a complete breakdown in negotiations and an ensuing free-for-all in which political and ethnic militias fight in various combinations with the connivance of regional governments. Looking at the region more generally, regional integration holds significant potential to support growth in East Africa, as smaller economies benefit from larger regional markets, and countries take advantage of comparative advantages in the larger East African economy.

Africa’s second largest country by population, Ethiopia, neighbours Africa’s most progressive trade block, the East African Community (EAC), with a combined population of over 230 million. From an economic perspective, the region continues to show commendable real GDP growth, encompassing some of the fastest growing economies in Africa. In addition, with the exception of Tanzania’s gold industry, the region is less dependent on its mineral wealth than most other regions on the continent, which has resulted in relatively diverse economic development.

The conflict in South Sudan – which was planning to join the EAC in coming years – will act as a cancer in the region, and tarnish what is one of (if not the) most encouraging regional growth stories in Africa. The possibility of another failed state in East Africa, and the accompanying security concerns that this would bring, will not only weigh on the regions outlook, but will also preserve the continent’s reputation as being confined to uncertainty.